But environmentalists say the report raises fresh concerns about the EPA's 2012 decision to halt its investigation into possible well-water contamination in Parker County, Texas.

The EPA inspector general's report is the latest analysis to spotlight the regulator's handling of high-profile cases of alleged drinking-water contamination near natural gas drilling sites.

Over three years, the EPA has sampled water in Dimock, Pa., Pavillion, Wyo., and Parker County after residents complained that their water had turned foul once natural gas drilling began nearby. In each case, the EPA found evidence of contamination but declined to pursue further water sampling or disciplinary action against the energy companies.

Critics have accused the Obama administration of backing away from the inquiries amid industry and political pressure, and because it views natural gas drilling as crucial to the economy and a cleaner environment.

The inspector general's inquiry was started at the behest of Sen. James M. Inhofe (R-Okla.) and other lawmakers who contend that EPA's regional office in Texas, EPA Region 6, had exceeded its authority during the Parker County investigation. Many Republicans viewed the EPA's investigation as a politically motivated attack against the oil and gas industry.

On Tuesday, Inhofe's office dismissed the inspector general's report, saying it had "failed to examine [a] closed-door conspiracy" to ruin the reputation of the energy company involved, Range Resources.

But environmentalists welcomed it as vindication of efforts by the EPA and independent scientists to explore the potential pollution risks of hydraulic fracturing, or fracking. The process involves injecting millions of gallons of water and sand laced with chemicals deep underground to crack shale formations and unlock oil and gas.

The EPA got involved in 2010 because Range Resources and Texas regulators failed to act immediately on homeowners' complaints of possible drinking water contamination, the report says.

When the EPA conducted its own tests, it found such high levels of methane in the water supply of two homes that it posed a risk of explosion, the report says. EPA tests also showed that the water contained benzene, a known carcinogen, above the agency's maximum contamination levels.

Methane is the main component of natural gas, and an analysis performed for the EPA by an independent scientist found samples from the water supply to be nearly identical to the natural gas from the nearby Range Resources gas well.

Range Resources and Texas denied that the company's gas development had contaminated the residents' water.

The EPA issued an emergency order against Range Resources to provide drinking water to the affected residents and to better monitor the gas well. When Range Resources did not fully comply, the Justice Department filed a complaint on behalf of the EPA in January 2011 but withdrew it by March 2012.

The inspector general's report said the EPA and Justice Department halted their action because the EPA worried about the costs and legal risks of the case. Although most officials were confident of their evidence, "there was always a risk that the judge could rule against the EPA. If that happened, it would risk establishing case law that could weaken the EPA's ability to enforce" parts of the Safe Drinking Water Act, the report said.

Range Resources threatened to refuse to cooperate with a study the EPA had begun into possible effects of fracking on drinking water if the agency disciplined it, the report said. The EPA shelved its complaint after getting a nonbinding agreement for access to the company's sites, the report said, but so far Range Resources has declined to participate in the study.

A policy analyst for the Natural Resources Defense Council, Amy Mall, said the EPA had enough evidence to intervene but "chose to step away from enforcing the law when drinking water was unsafe.... Drinking water quality should never be traded for a hollow promise that may never be fulfilled."

In a statement, the EPA said the report determined its actions were "supported by law and fact."

Range Resources spokesman Matt Pitzarella denied that its natural gas development had contaminated drinking water and said it was reviewing the report. The company is pursuing a $3-million defamation lawsuit against Steve Lipsky, one of the homeowners who complained about his water.